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Soderholm 


The  Silver  Question 


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Silver 
Question 


By  J.  N.  SODERHOLM. 


CHICAQO: 

THE  REQAN  PRINTING  HOUSE, 

1896. 


i 


-0_ 
THE 


Silver  Question 


BY 


J.  N.  SODERHOLM. 


CHICAGO: 

TtU;  KtGAN  I'klNTING  HOUSE, 
18t6. 


COPYR  IGIIT, 

1896. 


^ 


CONTENTS. 


Page- 
•       5 


Preface 

Introduction 9 

Money i6 

Retail  Transactions 21 

Wholesale  Transactions 25 

Cost  of  Production  and  Prices 29 

Cost  of  Production  of  Gold  and  Silver 32 

Do  We  Need  More  Money  ? 41 

Bi-Metallisni    51 

What  Would  Happen  if  We  Adopt  the  Ratio  of 

of  1 6  to  I  ? 58 

Conclusion 06 


4  r^f^j 


S7390 


TREFACE. 

A  quarter  of  a  century  of  discussion  and 
agitation  seems  to  have  bronglit  about  an  ap- 
preciable change  in  the  sentiment  of  the  peo- 
ple on  the  silver  question,  all  over  the  world, 
and  particularly  in  this  country.  The  insuffi- 
ciency of  the  supply  of  gold  and  the  evil  of 
falling  prices  consequent  upon  the  constant 
discriminations  against  silver,  have  at  last 
stirred  the  public,  who  now  look  for  a  remedy 
ill  the  lemonetization  of  the  white  metal. 

We  have  in  this  country  practically  three 
monetary  parties,  to  wit: 

1.  Those  who  want  the  unlimited  coinage 
of  silver  and  gold  at  the  ratio  of  10  to  1. 

2.  Those  who  want  our  metallic  money  to 
consist  of  gold  and  silver  of  full  value,  or 
who  want  true  bimetallism. 

3.  Tliosc  wlio  want  (lie  gold  standard. 

5 


What  would  bo  tlio  consoquence  of  tlio 
adoption  of  iinliniitod  coinage  at  10  to  1  can 
be  reasonably  calculated.  ITow  and  to  what 
extent  the  bimetallists  could  add  full  value 
silver  money  to  our  circulation  without  dis- 
turbing the  gold. is  a  question  upon  the  satis- 
factory solution  of  whi(  h  depends  the  concili- 
ation of  the  gold  standard  party  as  well  as  of 
the  ardent  friends  of  silver. 

If  this  country  alone  is  to  undertake,  or  to 
start,  the  restoration  of  bimetallism,  or  of  sil- 
ver, it  must  adopt  a  policy  which  would  sat- 
isfy the  following  conditions: 

1.  Not  to  disturb  materially  our  j)resent 
monetary  system. 

2.  Not  to  add  to  our  coinage  such  a  quan- 
tity of  silver  as  to  drive  out  any  of  our 
gold. 

3.  To  make  the  silver  money  good  the 
world  over. 

4.  To  make  the  new  silver  dollar  of  same 
size  as  the  old  silver  dollar. 

5.  To  make  the  coinage  unlimited. 


G.  To  coin  silver  from  any  part  of  tlit^ 
world. 

7.  To  fix  the  price  of  silver — barring  the 
exchanges — for  the  whole  world. 

8.  To  cause  the  government  no  loss  ex- 
cept the  cost  of  coining. 

If  a  measure  fulfilling  all  the  above  men- 
tioned conditions  can  be  framed,  I  think  it 
would  follow: 

1 .  That  our  present  gold  raonometallists 
would  offer  no  objection  to  the  adoption 
of  bimetallism. 

2.  That  in  the  course  of  a  very  short  time 
the  truth  of  the  principles  of  bimetallism 
wcnild  again  have  been  practically  dem- 
onstrated. 

3 .  That  in  the  near  future  other  countries, 
ono  after  another,  would  hasten  to  adopt 
bimetallism,  Axliicli  would  soon  become 
general  or  universal. 

4.  That,  within  a  few  years,  possibly  be- 
fore the  rlose  of  this  century,  bimetal 
lisiii,  with  free  and  unlimited  coinage  of 


silver  and  gold  nt  the  old  ratio  of  15  1-2 
to  1,  or  10   to  1,  would   be  firmly  estab- 
lished. 
Such    a   measure   can  be  framed.     I   am 
satisfied  that  the  adoption  of  unlimited  coin- 
age of  silver  and  gold  at  the  ratio  of  16  to  1 
would   fill   the    bill.     But  in   adopting   un- 
limited coinage  we  might  placate  opponents 
by  gradually  increasing  the  gold  in  reserve 
^■'for  the   greenbacks   and    by  charging,  until 
further,  on  the  coinage  of  silver  a  seigniorage 
which  would  tend  to  limit  the  introduction  of 
the  white  metal. 


IXTPiODUCTION. 

The  silver  question  of  to-day  is  not  the  sil- 
ver question  of  five  years  ago,  nor  was  the 
silver  question  of  five  years  ago  the  silver 
question  of  twenty  years  ago.  The  downfall 
of  silver  has  been  gradual,  one  nation  after 
another  discontinuing  the  coinage  of  the 
white  metal  for  the  purpose  of  unlimited  legal 
tender  money,  until  at  present  it  would  seem 
as  if  we  had  reached  the  bottom,  and  as  if — 
providing  silver  is  to  be  rehabilitated — the 
time  had  now  come  for  rehabilitation,  or  at 
least  for  the  beginning  of  an  upward  move- 
ment which  in  the  course  of  a  short  time 
would  culminate  in  the  complete  restoration 
of  silver,  the  re-establishment  of  bimetallism 
at  the  ratio  of  15  1-2  to  1,  or  IG  to  1. 

Tf,  wlien  (Icriiiany  had  adopted  the  single 
gold  sfaiidai-d,  slic  liad  not  been  in  such  a 


10 

liurry  to  accumulate  gold  and  dispose  of  her 
silver,  I  tliiuk  bimetallism  would  not  have 
been  seriouslv  endangered.  But  while 
France  had  to  pay  the  war  indemnity,  and 
Oermanv  flooded  the  market  with  silver, 
which  more  or  less  directly  found  its  way  to 
the  French  mint,  the  capacity  of  the  latter 
was  so  overtaxed  that  before  the  closing  of 
the  same  there  was  in  stock  for  coinage 
so  much  silver  bullion  that  it  would  take  a 
year  to  coin  it.  The  bullion  certificates  is- 
sued by  the  mint  could  be  discounted,  but, 
naturally,  the  value  of  silver  bullion  was  re- 
duced by  the  discount  on  the  certificates.  If 
the  change  of  standard  in  Germany  had  ex- 
tended over  a  period  of  ten  or  fiftt^en  years 
the  price  of  silver  would  not  have  fallen  sev- 
eral per  cent,  France  would  easily  have  been 
able  to  bear  the  burden  of  the  German  innova- 
tion, financiers  of  other  countries  would  not 
have  been  frightened,  bimetallism  would 
have  been  preserved,  and  the  whole  world 
would  have  been  benefited. 


11 

But  the  principles  of  bimetallism  were  not 
understood.  The  statesmen  of  the  time  had 
imbibed  their  wisdom  from  the  teachings  of 
John  Stnart  Mill:  a  double  standard  was  a 
pln'sical  impossibility.  And  so  one  country 
after  another  closed  .its  mints  against  further 
coinage  of  siher,  and  for  every  new  demoneti- 
zation the  difficulties  for  the  balance  of  the 
world  to  restore*  the  old  order  of  things  be- 
came greater.  Yet  even  in  1870,  on  the  re- 
sumption of  specie  payments,  this  country 
wduld  in  all  probabilitv  have  been  powerful 
enough  to  re-establish  bimetallism  by  adopt- 
ing unlimited  coinage  of  silver  and  gold  at 
the  ratio  of  10  to  1.  Such  action  would  un- 
(|uestionably  have  restored,  at  that  time,  the 
value  of  silver.  It  would  most  probably  have 
l>rought  back  the  Latin  Union  to  its  old  pol- 
i<  y,  stopped  further  demonetizations,  encour- 
jiged  ()tlH'r  countries  about  to  resume  specie 
jtayments  to  adopt  the  double  standard,  and 
thus  Kolvetl  I  lie  whole  question.  The  Bland- 
Allison    bill    iiiii;lit     possibly    have    brought 


12 

about  a  similar  result  il  the  secretary  of  the 
treasury  had  not  discriininatecT  a2;ainst  the 
iiiaximum  coinage  of  |4, 000,000  of  silyer  a 
month,  for  at  that  time  such  maximum  coin- 
age would  probably  have  been  equivalent  in 
effect  to  the  adoption  of  unlimited  coinage. 
As  the  Bland  act  was  administered,  however, 
it  certainly  fell  short  of  supplying  the  requi- 
site remedy  to  restore  bimetallism.  When, 
later,  the  Sherman  act  was  passed,  the  appre- 
ciation of  gold  had  proceeded  so  far  that  the 
bill,  again  leaving  discretion  to  the  Secretary 
of  the  Treasury,  could  not  restore  bimetallism. 
After  the  closing  of  the  Indian  mints  mat- 
ters have  become  worse,  and  the  solution  of 
the  silver  question  has  become  still  more 
difficult.  What  might  have  been  an  efficient 
remedy  in  1871  could  not  have  been  ap- 
plied in  1870.  What  might  have  been  effec- 
tive in  1879  would  have  been  of  no  avail 
in  1890.  And  if  bimetallism  is  adopted  now 
the  method  of  adoption  must  be  made  to  fit 
the  circumstances  of  the  day  and  the  possible 


13 

events  of  the  morrow.  No  wonder  Jhat  our 
greatest  statesmen,  feeling  all  this  and  thor- 
oughly cognizant  of  the  changes  that  have 
taken  place,  cannot  to-day  advocate  measures 
(jf  which  they  would  have  approved  twenty 
years  ago,  or  even  five  years  ago. 

What  will  come  next  in  the  history  of  the 
battle  of  the  standards?  Kussia  is  establish- 
ing the  gold  standard.  She  certainly  does 
not  possess  gold  enough  for  this  purpose 
A\  ithin  her  own  frontiers.  She  will  draw  on 
the  gold  supply  in  other  countries,  and  the 
yellow  metal  will  continue  to  appreciate.  And 
there  are  other  countries  which  may  adopt 
the  gold  standard  or  may  have  to  increase 
their  proportion  of  gold.  What  if  England 
decides  to  push  the  coinage  of  gold  in  India? 
W'hnt  if  this  country  should  decide  upon  a 
l;irgei'  i-eserve  for  its  greenbacks,  and  if  our 
Icinks  should  come  to  the  conclusion  thai  they 
must  keep  larger  reserves  than  they  now  do, 
and  more  of  gold?  ^Vllile  the  population  iii- 
<i-eases    and    the    industries    of    the    world 


u 

naturally  would  call  for  an  increase  in  the 
circulating  modinni — an  increase  which  can- 
not possibly  be  filled  by  the  new  i)roduction 
of  gold — we  have  nothing  before  us  but  the 
prospect  of  a  continued  appreciation  of  gold 
and  a  continued  fall  in  prices.  And  at  the 
same  time  the  silver  i)roduced  will  also  de- 
preciate. Those  who  now  clamor  against 
what  they  call  the  50  cent  dollar  would 
soon  raise  a  cry  against  what  they  would  call 
a  40  cent  dollar  or  a  30  cent  dollar^  and  the 
natural  outcome  would  seem  to  be  the  even- 
tual realization  or  anuiliilation  of  the  world's 
legal  tender  silver  money,  which  in  the  mar- 
ket for  ornaments  and  purposes  of  art  might 
possibly  bring  5  cents  on  the  dollar. 

And  how  would  prices  of  commodities,  real 
estate,  railroad  stock,  and  so  forth,  then 
stand?  The  consequences  of  the  demonetiza- 
tion of  silver,  serious  as  they  have  been 
hitherto,  are  really  as  nothing  to  what  they 
would  be  if  the  principle  of  demonetization 
is  to  be  carried  out  to  its  full  extent.     So  far 


15 

we  lia\'e  oulv  stopped  further  additions  to  the 
stock  of  silver  money.  We  have  not  yet  seri- 
ously attempted  the  more  difficult  operation 
of  getting  rid  of  what  we  have. 

But  let  us  hope  for  a  brighter  future,  more 
sense,  and  more  knowledge.  It  is  more  than 
probable  that  this  great  country  will  find  a 
satisfactory  solution,  or  at  least  inaugurate 
a  policy  that  will  soon  solve  the  peii^lexiug 
problem.  There  is  not  mucli  faith  to  be  put 
in  the  establisliment  of  bimetallism  by  inter- 
national agreement,  since  there  cannot  very 
well  be  any  international  responsibility  for 
the  monetary  systems  of  the  world.  But  as 
silver  has  been  demonetized  gradually,  so  it 
will  be  gradually  remonetized  by  independ- 
ent action  of  diilerent  nations  as  soon  as  they 
find  it  to  their  advantage  to  follow  the  ex- 
nmplf  of  the  country  which  makes  a  success- 
I'lil  start 


MONEY. 

In  the  bogmning  gold  and  silver  were  used 
as  ornaments,  gold  probably  in  some  locali- 
ties and  silver  in  others.  Vanity  prompted 
man  to  shine  among  his  fellow  beings, 
whether  it  be  by  a  lump  of  gold  to  his  nose 
or  a  silver  ring  around  his  finger.  All  were 
vain,  all  wanted  the  glittering  baubles;  but 
the  metals  were  scarce,  and  only  the  few  and 
favored  could  have  them.  These  ornaments 
became  a  factor  in  the  dawn  of  civilization. 
Instead  of  killing  each  other,  or  robbing  each 
other  when  famine  pressed  or  the  means  of 
subsistence  ran  short,  men  commenced  to  ex- 
change their  ornaments  for  food.  Those  who 
lost  their  ornaments  one  season  got  them  back 
another  when  thev  were  in  affluence  and  oth- 
ers  were  needy.  Later  on  the  materials,  gold 
and  silver,  designated  for  ornaments,  were 

16 


17 

used  more  extensively  to  secure  the  neces- 
saries of  life;  and  still  later  these  materials 
were  made  into  pieces  uniform  in  weight  and 
size.  That  was  money.  And  a»  the  quantity 
of  money  increased  and  onh'  a  part  of  the 
l>recious  metals  were  ever  used  for  ornaments, 
the  original  purpose  for  which  the  metals 
were  intended,  was  more  or  less  lost  sight  of. 
When  famine  visited  Canaan  money  was  sent 
to  Egypt  to  buy  corn.  Money  had  been  saved 
and  stored  for  such  an  eventuality.  And  un- 
til recent  times  wise  men  taught  their  people 
to  lay  up  stores  of  precious  metals  as  being 
the  essence  of  the  wealth  of  nations. 

The  fact  that  money,  or  originally  the  ma- 
terial for  ornaments,  could  save  a  man  from 
starvation,  roused  human  invention  and  in- 
genuity. XoAA'  wants  were  created  and  satis- 
fied. The  merchant  brought  the  superfluities 
and  peculiaiities  of  foreign  countries  and  ex- 
changed them  foi'  money.  Factories  grew  up, 
(•(nniiKxlilles  wci-e  produced  and  offered  by 
coiiipelitoi's  in  (he  iiiail<el  h)  tliose  w  ho  could 


18 

buy.  And  (hose  who  had  inonoy  wherewith 
to  buy  competed  for  the  comuiodities  offered. 
Thus  prices,  or  the  money  value  of  commo- 
dities, were  established  and  clearly  depended 
upon  the  relation  between  the  quantity  of 
money  and  the  quantity  of  goods  offered. 
When  a  man  buys  he  considers  in  the  first 
place  the  usefulness,  the  value  in  use,  to  him 
of  the  commodity  he  buys  as  compared  to  the 
usefulness  of  the  money  he  possesses.  In  tlie 
second  place  he  considers  the  competing  of- 
fers from  OAvners  of  commodities,  which 
owners  in  making  their  offers  first  con- 
sider the  value  in  use  to  them  of  a  certain 
sum  of  money  as  compared  to  the  utility  of 
the  goods  they  possess.  Thus  the  value  in 
exchange,  or  the  price,  is  determined. 

In  deciding  how  much  of  his  stock  of  money 
he  will  spend  the  buyer  will  consider  not  only 
his  actual  stock  but  how  soon,  or  how  often, 
he  can  replenish  it.  If  he  has  a  certain 
amount  which  he  is  reasonably  sure  he  can 
replenish  regularly  in  a  certain  time,  say 


19 

ev^ry  week,  or  evers'  two  weeks,  he  is  likely 
to  spend  or  invest  nearly  the  whole  of  his 
stock  of  money  in  that  time.  And  experience 
will  tell  almost  everybody  in  this  and  other 
civilized  countries  that  the  money  he  handles 
is,  most  of  it,  turned  over  in  a  short  space  of 
time.  Add  to  this  that  credit — I  shall  re- 
cur to  this  presently — is  nothing  else  than 
deferred  casli  payment,  and  we  shall  come 
to  two  very  important  conclusions.  First, 
the  stock  of  money  in  a  country  is  larger 
than  the  value  of  the  goods  which  it 
turns  over  in  what  we  may  call  the  period  of 
circulation.  Second,  there  ma}'  be  a  great 
number  of  periods  of  circulation  during  the 
long  time  of  a  year,  and  the  same  money  does 
the  same  service  as  manv  limes  in  the  vear 
as  there  are  periods  of  circulation. 

v'rom  the  above  we  shall  be  able  to  see  more 
cl.aily  the  actual  relation  between  money 
and  goods,  or  li<»w  i)ri(<'s  are  determined,  and 
il  is  not  diriirnll  to  understand  how  sensitive 


20 

the  value  of  goods  uiust  be  to  the  (iiuuitity 
of  money  at  command. 

We  can  also  understand  that  the  somewhat 
prevalent  idea  that  only  a  small  percentage 
of  business  is  done  by  money,  is  erroneous; 
while  it  is  eminently  true  that  the  total  stock 
of  money  in  a  country  like  ours  is  not  worth 
more  than  say  two  or  three  per  cent  of  the 
total  value  of  all  the  commodities  turned  over 
in  a  year,  or  say  only  one-fifth  of  one  per  cent 
of  the  value  of  the  goods  turned  over  in  ten 
vears,  or  the  infinitesimal  fraction  of  'one- 
fiftieth  part  of  one  per  cent  of  the  value  of 
the  goods  turned  over  in  one  hundred  years. 
Prominent  defenders  of  a  single  gold  stand- 
ard argue  that  it  is  of  little  consequence 
whether  we  have  much  money  or  little  money 
in  the  country,  because  money  plays  a  very 
small  part  in  the  exchange  of  goods.  The 
argument  is  false. 


DETAIL  TRANSACTIONS, 

How  much  iiionoy  is  necessary  to  transact 
:lie  business  of  a  worlving  man  who  earns  |2 
1  day?  Tlie  per  capita  circuhition  would 
liardly  furnish  a  satisfactory  answer,  since 
many  people  would  use  more  and  many  peo- 
[>le  would  use  less  money  than  the  working- 
man  who  earns  |2.  The  money  is  spent  with 
the  butcher,  the  grocer,  the  dry-goods  man, 
the  landlord,  and  many  others.  How  long  a 
time  does  it  take  for  it  to  circulate  through 
these  hands  and  then  through  the  bank  to 
[•eturn  to  the  party  who  pays  the  working- 
iiiiin?  Suppose  pay-day  to  be  once  a  week, 
md  that  the  %\1  then  received  are  spent  suc- 
•essivelv  during  the  week  and  return  to  the 
'Uiployer  in  that  time.  Then  all  the  circu- 
hilijig  iiK'diiiii!  i'<'(iuii-('(l  by  tlie  workiugmau 

is  ."S?12,  and  willi  this  amouni  he  transacts  liis 

21 


22 

business,  which  in  a  yaw  amonnts  to  52x12, 
or  |G2],  which  is  all  cash  business.  I  think 
it  far  more  likel}',  however,  that  the  circu- 
lating period  would  be  two  weeks,  and  the 
amount  of  circulating  medium  required  would 
be  |24. 

A  man  who  earns  f  100  a  month  and  is  paid 
once  a  month,  will  spend  his  money  gradually 
during  that  time,  and  will  need  more  circu- 
lating medium  than  the  man  who  earns  12  a 
day. 

Those  who  have  still  larger  incomes  no 
doubt  need  a  still  larger  circulating  medium. 

And  those  Avho  have  a  very  small  income 
will  need  only  a  small  amount  of  circulating 
medium. 

How  much  circulating  medium  do  the  peo- 
ple of  this  country  need  to  transact  the  re- 
tail business  of  their  daily  wants?  We  have 
about  23  millions  of  bread-AAinners  who  sup- 
p/>rt  about  70  millions  of  souls.  If  the  aver- 
age circulating  medium  for  each  producer 
were  only  |10  the  total  would  be  |230,000,- 


23 

000.  This  would  iiioau  an  average  circula- 
tion per  capita  of  about  *3.  If  the  average 
circulating  medium  needed  bv  each  worker 
was  PO  the  total  would  be  .f  090,000,000;  |40 
for  each  would  make  |920,000,000  and  repre- 
sent about  §13  per  capita. 

Something  like  this  latter  amount  is  prob- 
ablv  needed  to  transact  the  retail  business  of 
this  country,  which  is  practically  all  cash  or 
paid  by  cash  money  soon  after  the  debt  has 
been  incurred. 

For  want  of  statistics  it  is  necessarily  diffi- 
cult to  state  the  amount  of  the  total  annual 
retail  trade  of  the  country.  But  everybody 
can  understand  that  there  is  a  relation  be- 
tween this  annual  total,  the  total  of  the  circu- 
laliuii-  medium  nccessarv  to  transact  the 
trade,  and  the  number  of  the  periods  of  cir- 
culation during  the  year.  If  the  circulating 
HHMlium  is  diminished  the  value  of  the  goods 
sold  is  dimiiiislicd. 

Som(»  jx'opic  arc  of  ojiinioii  thai  only  a  few 
percent  of  t  Ik-  hiisincss  of  I  he  woi'ld  is  done  by 


24 

actual  use  of  mouoy.  This  is  an  error.  If 
the  circulating  niodium  is  equal  to  5  per  cent 
of  the  amount  of  the  annual  business,  the 
number  of  the  periods  of  circulation  during 
the  year  must  be  twenty.  The  same  five  dol- 
lar bill  makes  its  trade  circuit  twenty  times 
and  pays  cash  for  100  dollars'  worth  of  goods. 


WnOLESALE  TRAXSACTIOXS. 

The  clearing  house  exchanges  of  the  coun- 
try amount  to  about  §00,000,000,000  a  year, 
representing  Avholesale  transactions,  trans- 
fers of  stocks,  bonds,  real  estate,  and  so  forth. 
This  enormous  amount  is  settled  between  the 
banks  principally  by  exchanging  their  cus- 
tomers' checks  and  drafts,  and  very  little 
cash  money  is  used  in  adjusting  the  compara- 
tively small  balances.  Strange  enough  the 
idea  has  grown  up  and  become  popular  that 
1  his  clearing  house  business  is  credit  business, 
not  to  sav  actual  barter,  bv  which  wheat  is 
exclianged  for  cotton,  iron  for  lumber,  stocks 
foi-  real  estate  and  so  forth,  and  that  in  all 
tliesc  wholesale  transactions  money  cuts  so 
small  a  figure  that  it  cannot  possibly  have 
any  innuonce  on    prices.       These    ideas  are 

wrong.     Xo   business   can   be  more   strictly 

25 


26 

cash  than  the  exchanges  made  by  the  banks 
tlirongh  the  clearing  honses,  for  every  cheek 
and  draft  is,  as  a  rule,  covered  by  cash  money 
in  the  banks  on  which  they  are  drawn.  What 
the  clearing  house  does  is  not  to  extend  any 
credits  to  wheat  dealers  or  iron  manufacturers 
or  to  facilitate  any  kind  of  barter,  but  simply 
to  save  the  trouble  of  counting  and  trans- 
ferring the  cash  money.  When  the  grain 
dealer  draws  a  check  to  pay  for  a  cargo  of 
wheat  he  knows  precious  little  about  the  do- 
ings in  the  iron  and  cotton  market,  but  is  per- 
fectly acquainted  with  the  cash  balance  in  his 
bank. 

The  reserves  in  the  banks  furnish  the  cash 
money  necessary  to  carry  on  the  wholesale 
transactions  of  the  country,  but  the  period 
of  circulation  in  the  wholesale  business  is  so 
short  that  a  comparatively  small  amount  of 
money  will  turn  over  an  immense  quantity  of 
trade  in  the  course  of  a  year.  If  the  bank 
reserves  in  the  country  amount  to  |000,- 
000,000  and  represent  the  money  necessary 


2t 

for  the  wholesale  transactions  of  |G0,000,000,- 
000  a  year,  the  i)eriod  of  circulation  would  be 
about  three  days,  and  the  reserves  would  per- 
form their  service  of  exchanging  goods  for 
cash  one  hundred  times  in  the  3'ear. 

The  banks  receive  deposits  of  money  and 
loan  out  some  of  it.  The  amount  of  reserve 
kept  is  principally  determined  by  the  prob- 
able needs  of  the  depositor,  though  a  mini- 
mum reserve  may  be  fixed  by  law.  Generally 
the  banks  keCp  a  larger  reserve  than  is  ac- 
tually needed  by  the  customers,  and  this  is 
particularly  the  case  in  times  of  uncertainty 
and  depression,  when  idle  money  is  accumu- 
lated in  the  bank  vaults.  When  the  banker 
becomes  suspicious  of  the  "times"  he  cuts 
down  his  loans  and  increases  his  reserve. 
Thus  money  is  drawn  from  the  outside  or  re- 
tail circulation,  wages  and  i)rices  fall,  less 
money  is  needed  for  the  wholesale  business, 
Mild  the  actually  idle  ixdlion  of  the  bank  re- 
serves is  llie  only  lliiiig  tli;i<  is  going  up. 

Sonic    people    (liink    lli;i(     llie    volume    of 


28 

11101103'  ba.s  iiotbiiig  to  do  with  prices  of  com- 
modities, because  wlieii  prices  aud  wages  are 
falling  iiiouey  is  more  abundant  and  "cbeap." 
Tbese  people  overlook  the  fact  tbat  it  is  tbe 
abundance  of  idle  money  in  tbe  bank  vaults 
or  elsewhere  that  causes  the  scarcity  of  money 
among  the  people. 

If  the  bank  reserves  were  thus  increased 
1100,000,000  draw^n  from  the  outside  or  retail 
circulating  medium,  what  would  be  the  con- 
sequence? If  the  period  of  circulation  had 
been  about  eighteen  days  or  one- twentieth 
part  of  a  year  the  reduction  in  wages  and  in- 
comes, or  in  prices — if  the  total  quantity  of 
commodities  remained  the  same — would  rep- 
resent 12,000,000,000  a  year.  In  such  a  case, 
however,  experience  has  proven  that  produc- 
tion aud  trade  are  reduced,  and  that,  there- 
fore, wages  and  prices  would  not  fall  quite 
in  proportion  to  the  reduction  of  the  circu- 
lating medium.  Povert}'  and  falling  prices 
usuallv  walk  hand  in  hand  in  similar  cases. 


COST  OF  PRODUCTION  AND  PRICES. 

From  time  to  time  it  has  been  asserted  tliat 
the  fall  in  prices  in  recent  j-ears  is  to  be  at- 
tributed to  a  reduction  in  the  cost  of  produc- 
tion of  commodities,  and  not  to  the  demone- 
tization of  silver.  The  assertion  is  a  fallacy.- 
A  reduced  cost  of  production  does  not  lower 
average  prices.  Prices  represent  the  value 
of  comuiodities  expressed  in  money,  and  as 
long  as  the  quantities  of  commodities  to  be 
exchanged  by  a  given  quantity  of  money  re- 
main the  same,  the  average  prices  must  re- 
main the  same,  and  there  can  be  no  exception 
from  the  rule.  Suppose  that  one-half  of  the 
commodities  in  the  world,  hitherto  exchanged 
by  one-half  of  the  money,  is  reduced  in  cost 
of  production  by  one-half.  The  prices  could 
be  reduced  one-half,  and  only  half  as  much 
money  as  before  would  be  needed  to  exchange 

29 


30 

the  coitimodities  in  question.  Onc-iiuaiter  of 
iho  world's  monoy  could  bo  dropped  in  the 
sea,  so  to  say.  But  it  isn't  dropped  in  the  sea. 
It  goes  to  swell  the  prices  of  all  commodities. 
Those  commodities  which  are  not  reduced  in 
cost  of  i)roduction  will  go  up  in  price,  and 
those  commodities  which  are  actually  reduced 
one-half  in  cost  of  production  will  not  be  re- 
duced one-half  in  price.  The  proportion  of 
prices  will  be  regulated  according  to  the  pro- 
portionate cost  of  i^roduction  of  commodities, 
but  the  average  of  prices  evidently  remains 
the  same. 

Again,  suppose  all  commodities  are  all  at 
once  reduced  one-half  in  cost  of  production, 
or,  in  other  words,  that  weary  mankind  in  one 
hai)py  moment  discovers  how  to  produce  what 
is  uoAv  produced  in  half  the  time  that  was  for- 
merly needed,  is  it  not  simply  ridiculous  to 
suppose  that  prices  would  be  reduced  one- 
half?  Everybody  ought  to  be  able  to  see  that 
prices  would  remain  the  same  as  before. 

A  reduction  in  the  cost  of  production  on- 


31 

ubles  us  to  produce  more  commodities,  and 
iu  order  to  be  able  to  exchange  all  commodi- 
ties at  the  same  average  price  as  before,  we 
need  more  money.  If  we  are  progressive  in 
I  he  arts  of  production  why  should  we  not  be 
equally  progressive  in  the  science  of  monev? 


COST  OF  riiODUCTION  OF  GOLD  AND 

SILVER. 

Gold  is  at  present  received  freely  and  coined 
in  unlimited  quantities  at  the  mints  of  most 
countries.  When  the  «^old  miner  starts  into 
business  he  probably  expects  to  strike  a  bo- 
nanza, but  if  he  does  not  succeed  in  this,  he 
is  likel}^  to  continue  mining  anyhow,  as  long 
as  he  makes  a  reasonable  profit,  and  even  if 
he  does  not  succeed  in  making  a  reasonable 
profit  the  probability  is  that  he  will  continue 
until  he  is  broke.  He  will  have  to  stand  cer- 
tain expenses,  but  the  return  for  his  outlay 
is  most  uncertain.  Accident  plays  a  great 
part  in  the  discovery  and  production  of  gold, 
but  at  the  same  time  there  is  another  circum- 
stance which  will  partly  determine  to  what 

extent  people  will  go  into  the  mining  busi- 

32 


33 

nesSj  and  that  is  the  value  of  gold — how  much 
gold  can  buy.  The  piices  of  commodities  de- 
teriiiiued  by  the  stock  of  money  in  the  world 
— gold,  silver,  and  paper  mone}' — will  guide 
in  this  respect,  and  it  is  natural  that  when 
l)rices  are  falling,  and  money  is  appreciating 
in  value,  greater  efforts  should  be  made  to 
find  gold  than  when  prices  are  rising  and 
money  is  dei)reciating  in  value.  The  produc- 
tion of  gold  and  its  addition  to  the  stock  of 
mone}'  has  in  itself  the  tendency  to  raise 
pi-ices  and  in  the  end  to  luit  a  limit  to  the 
production  when  prices  had  gone  so  high,  and 
the  value  of  gold  had  fallen  so  much  that  it 
would  no  longer  pay  to  produce  the  metah 
Thus  there  is  at  least  a  semblance  that  the 
outj)Ut  of  gold  would  follow  the  same  law  as 
ilie  output  of  pig-iron,  and  be  determined  in 
(lie  long  run  by  (lie  cost  of  production.     But 

wlicu  wo  <-oiisi(l<'!'  lliMl  the  stock  of  money  in 
the  worhl  is  in  r«iniHl  figures  .*;10,()()(I,()()(),0(M) 
— gold,    silvci-,    ;iii(l     nn«-o\('i('(|     ])ii])er — and 

liiiil    IIm'  ;ninii;il   |ii-n(|nrii(in  of  gold   is  nlxMit 


34 

1150,000,000,  of  which  probably  onlyJT^jOOO,- 
000  is  added  to  the  stock  of  money,  while  the 
other  $75,000,000  will  be  used  in  the  arts,  and 
lo  make  good  the  wear  and  tear  of  the  coins 
in  circulation,  Ave  find  that  the  increase  in  the 
stock  of  mone}'  from  this  source  is  only  about 
three-fourths  of  one  per  cent — far  from 
enough  to  fill  the  increase  demanded  by  a 
growing  population  and  by  what  should  be 
a  progressive  age.  The  value  of  our  annual 
gold  product  simply  conforms  to  the  value  of 
the  world's  stock  of  money,  and  it  does  not 
matter  a  particle  whafit  has  cost  to  produce 
it.  If  gold  rained  down  from  heaven  at  the 
limited  rate  of  |150,000,000  a  year,  and  we 
used  it  for  ornament  or  added  it  to  our  stock 
of  money,  what  difference  would  it  make? 
Would  its  value  conform  to  the  value  of  our 
stock  of  nionev,  or  would  it  conform  to  the 
cost  of  production,  which  in  this  case  would 
be  nothing?  Many  learned  economists,  and 
particularh'  the  defenders  of  a  single  gold 
standard,  are  so  imbued  with  the  cost  of  pro- 


35 

duction  theory  that,  if  a  lump  of  gold  worth 
§150,000,000  was  found,  so  to  say,  ready  made, 
they  would  proclaim  not  onh'  that  that  lump 
would  have  to  obe^-  their  law  of  cost  of  pro- 
duction, and  that  it  would  be  worth  nothing, 
but  that  all  the  gold  in  all  the  world  must 
follow  the  same  law  as  the  newly  found 
lump,  could  not  possibly  be  worth  anything, 
and  would  have  to  be  demonetized.  And  if 
they  were  inconsistent  enough  not  to  saj'  such 
liard  things  about  goM,  they  would  certainly 
sav  it  about  silver. 

What  should  we  sav  about  the  white  metal 
and  its  relation  to  the  law  of  cost  of  produc- 
tion? If  silver  were  in  the  same  position  as 
gold,  of  course  it  would  follow  the  same  rules 
as  gold,  and  would  bear  the  same  relation  to 
the  law  of  cost  of  production  as  gold  does, 
r.iit  silver  is  situated  dilTcrentlv  from  what 
gold  is,  ever  since  the  demonetization  of  sil- 
ver commenced.  In  some  countries  we  have 
larjijf'  stocks  of  silver  in  ciitulation,  along 
with  gohl,  ill    (111'   r;i(i()  of   l.l   1-2  to   1,  and 


36 

while  gold  aud  other  iiioiioy  have  appreciated 
considerably  in  value  dnring  the  last  twenty- 
three  years,  this  silver  nionev  has  likewise 
appreciated  in  \alue.  In  this  country  we 
have  some  |500,000,000  of  silver  circulating, 
or  represented  by  circulating  i^aper,  at  the 
ratio  of  1(1  to  1,  aud  this  silver  money  is  ap- 
preciating in  value  in  the  same  way,  along 
with  gold.  In  India  the  coinage  of  silver  has 
been  stopped,  and  while  the  money  in  that 
country  consists  only  of  silver,  and  thus  since 
1893  is  either  stationary  or  decreasing  in 
quantity,  it  is  evident  that  if  there  is  any 
progress  at  all  in  the  way  of  an  increasing 
production  of  commodities,  the  silver  money 
in  that  country  must  now  be  appreciating  in 
value.  But  in  those  few  countries  where  sil- 
ver is  still  coined  without  restriction  the  value 
of  the  new  production  conforms  to  the  value 
of  the  money  in  circulation  just  as  it  con- 
forms to  the  market  value  for  purposes  of  art. 
By  restrictions  in  the  use  of  silver  for  money, 
by  refusing  to  allow  the  new  silver  product 


37 

]»y  unlimited  coinago  to  conform  to  the  vahie 
of  the  money  in  the  world,  the  metal  has  been 
brought  into  this  peculiar  position. — The  talk 
about  our  "50  cent  dollar*'  is  really  too  ab- 
surd, for  the  very  simple  reason  that  we  could 
not  throw  our  $500,000,000  on  the  market  for 
ornaments,  etc.,  or  on  the  money  markets  of 
Mexico  or  China,  and  realize  anything  like  50 
cents  for  371  1-4  grains.  If  all  countries  in 
the  world  were  to  sell  their  silver  money 
for  purposes  of  art — that  is  to  say,  a  quantity 
of  some  .«;4,000,000,000,  I  really  do  not  believe 
tliat  it  would  be  possible  to  obtain  5  cents  per 
ounce.  Those  who  have  made  up  their  minds 
that  the  silver  money  has  to  go,  might  reason- 
ablv  talk  about  our  silver  dollar  as  our  5  cent 
dollar  or  1  cent  dollar.  Those  who  want  the 
silver  monev  to  stav,  and  silver  to  be  reha- 
bilitateil,  are  justified  in  speakinjg:  of  our  sil- 
ver dollar  as  a  dollar.  Our  gold  money 
would  be  subject  to  the  same  laws  of  value 
if  we  treated  it  in  the  same  way  in  which  we 
have  treated  silver.     If  (lie  world's  .*;<  1,000,- 


38 

0(M),000  of  nold  was  olTered  to  the  goldsmiths 
to  be  used  for  ornaiiuMits,  the  value  of  it  would 
not  be  75  cents  an  ounce.     Everything  in  this 
case  depends  upon  the  use  to  whicli  we  put 
our  stocks  of  gold  and  silver.     It  would  not 
at  all  be  impossible  for  this  and  other  coun- 
tries to  decree  that  the  silver  dollar  should 
henceforth  circulate  only  as  worth  50  cents. 
Such   a  measure  would  please  many,  who 
would  consider  that  the  right  way  to  bring 
about  an  honest  silver  dollar,  which  would  at 
last  conform  to  the  Tnarket  price  of  silver. 
The  only  trouble  is  that  such  a  process  would 
bring  with  it  a  contraction  of  the  world's 
money,  and  a  fall  in  prices  to  such  an  extent 
that  the  "market  value"  of  the  new  50  cent 
piece  wouJd  not  be  more  than  about  35  cents. 
The  idea  of  the  cost  of  production  regulating 
the  value  of  the  stock  of  silver  money  is  worse 
than  a  case  of  the  tail  wagging  the  dog.     Sup- 
pose the  annual  production  of  silver  is  |100,- 
000,000,  and  that  of  this  |50,000,000  were  used 
for  money.     The  money  of  the  world  is  |10,- 


S9 


000,000,000.  The  former  amount  is  the  tail, 
the  latter  is  the  dog.  Years  ago  our  states- 
men got  it  into  their  heads  that  the  tail  might 
be  wagging  the  dog,  and  so  they  cut  it  off. 
Now  tliey  have  discovered  that  the  loose  tail 
is  wagging  the  dog. 

In  connection  with  the  above,  I  would  make 
a  remark  about  the  mine  owners'  profit.  A 
good  many  people  object  to  the  rehabilitation 
of  silver  on  the  ground  that  it  would  add  enor- 
mously to  the  wealth  of  the  owners  of  silver 
mines.  These  people,  in  the  naiTowness  of 
their  views,  would  sacrifice  the  happiness  of 
mankind  for  the  pleasure  of  spiting  a  few  suc- 
cessful mine  owners.  As  a  matter  of  fact,  we 
have  thousands  of  silver  mines  in  this  coun- 
try alone,  and  the  vast  majority  of  them  have 
yiehhMl  little  or  n(;thing,  while  the  cost  of 
working  them  has  been  very  great.  In  short, 
sonic  very  good  ant hoi'i lies  have  estinmted 
tliat  on  an  average  more  than  two  dollars 
is  expendcil  foi-  every  dollar's  worth  of  silver 
brought  out  of  Hie  gioiiiid.     Silvei-  iiiiiiiiig  is 


40 

a  spoc'iilatiou,  iu  ^vlli(•ll  the  profit  naturally 
acenics  to  the  few  successful  ones.  If  all  the 
silver  mining  was  to  be  done,  say,  on  govern- 
ment account,  it  would  very  soon  be  found 
that  the  cost  of  production  was  too  large  to 
allow  any  silver  mining  at  all. 


DO  WE  NEED   MORE  MONEY? 

Prices  have  fallen  enormously  ever  since 
the  demonetization  of  silver  commenced. 
During  the  last  quarter  of  a  century  trade  has 
been  depressed,  though  there  have  been  a 
couple  of  revivals,  between  1880  and  1882,  and 
between  1890  and  1892.  The  old  rule  of  a 
business  crisis  occurring  every  ten  years  seems 
to  have  been  reversed,  and  instead  of  it  we 
have  now  more  or  less  of  a  continual,  crisis, 
with  little  bits  of  revivals  now  and  then.  One 
oi  the  causes  of  this  state  of  things  is  certainly 
the  insufFiciency  of  money, bringing  about  the 
fall  in  prices.  Nor  can  it  be  long  before  it 
is  generally  recognized  that  a  continued  fall 
ill  prices  must  be  a  powerful  obstacle  in  the 
way  of  progress  and  enteri)rise.  Individu- 
als    now    rarely     enter     into     any    indus- 

41 


42 

trial  nudertaking  ou  their  own  risk,  nnloss 
tlu'v  cau  pay  for  the  whole  plant,  for  experi- 
ence has  taught  them  that  a  plant  which  to- 
day costs  |100,000  will  in  five  years  not  be 
worth  175,000,  and  that  ten  years  hence  it 
will  be  worth  still  less.  If  you  were  to  build 
a  factory  for  |100,000,  and  in  doing  so  had  to 
give  a  mortgage  for  |50,000,  your  property 
would  be  out  of  your  hands  after  a  certain 
time,  unless  the  profits  had  enabled  you  to 
pay  off  the  mortgage.  For  this  reason  indus- 
trial undertakings  are  more  and  more  coming 
into  the  hands  of  corporationSj  and  the  pros- 
pects for  the  individual  are  becoming  slim- 
mer, and  the  ultimate  result  is  that  the  in- 
dustrijil  organizers  become  more  cautious, 
and  the  number  of  unemployed  grows  larger. 
To  what  extent  are  our  great  railroad  sys- 
tems affected  by  falling  prices?  Freight 
rates  must  be  reduced  like  the  price  of  any 
other  commodity,  and  the  income  drops.  The 
operating  expenses  may  be  reduced  in  pro- 
portion, but  the  interest  on  the  bonds  remains 


43 


the  same,  and  eventually  the  road  goes  into 
the  hands  of  a  receiver.  The  worst  conse- 
quence, however,  is  that  railroad  construc- 
tion is  discouraged,  no  new  fiohls  are  opened 
up,  and  it  has  even  been  proposed  in  Illinois 
that  the  state  government  shouhl  undertake 
the  responsibility  of  deciding  whether  a  pro- 
posed new  railroad  would  be  needed  or  not, 
before  granting  a  charter — this  for  the  pur- 
pose of  protecting  the  earnings  of  the  old 
roads.  The  trouble  is,  there  is  no  incentive 
to  progress;  there  is  stagnation,  there  is  less 
employment,  and  there  is  less  provision  for 
the  growing  population — and  all  this  because 
there  is  not  enough  money. 

The  farmers  probably  suffer  more  than  any 
other  class  of  oiir  citizens,  except  those  who 
siilTcr  by  not  being  able  to  get  any  work.  In 
this  country  a  very  large  number  of  farmers 
li;iv«'  mortgaged  tlicir  farms,  some  for  the  pur- 
pose of  improving  them,  others  because  they 
roiild  not  i)ay  the  wtiole  of  ilu'  purchase 
money  when  t  hey  bought.     The  falling  prices 


44 

of  farm  produce  liavc  reduced  the  money  value 
of  that  part  of  the  ])rodiice  which  would  oth- 
erwise have  satisfied  the  mortgage  holder. 
The  mortgage  will  weigh  heavier  and  heavier 
on  the  farmer,  and  in  thousands  of  cases  every 
year  the  farm  is  lost.  The  farmer  becomes 
a  renter,  there  is  less  inducement  to  till  the 
soil,  and  for  many  the  chances  to  become 
tramps  are  greater  than  ever. 

All  these  things  produce  uncertainty  and 
lack  of  confidence  among  traders  and  others 
who  from  time  to  time  speculate  on  the  de- 
mand for  goods  and  give  orders  to  manufac- 
turers or  wholesale  dealers.  Business  is  cur- 
tailed, production  is  cut  down,  work  is  scarce, 
and  enforced  idleness  is  plentiful.  But  if  the 
country  at  large  and  the  masses  are  losers, 
there  are  a  few  who  gain  by  falling  prices. 
Bond  and  mortgage  holders  and  creditors  in 
general  are  best  off,  and  apparently  gain 
what  others  lose.  Falling  prices  are,  indeed, 
a  most  powerful  element  in  making  the  rich 
richer  and  the  poor  poorer. 


45 

A  stock  of  money  sufficiently  large  to  main- 
tain a  steady  average  of  prices  or  an  average 
Ihictnating  as  little  as  possible  would  evi- 
dently be  conducive  to  greater  prosperity,  and 
a  more  just  distribution  of  the  good  things 
in  this  world.  For  the  sake  of  justice  and 
progress  we  need  more  money. 


The  latter  half  of  the  nineteenth  century 
will  sro  to  historv  as  divided  into  two  dis- 
tinct  and  widely  different  periods.  The  first 
(■((UiuH'Uces  with  the  gold  discoveries  in  Cali- 
fornia and  Australia,  and  culminates  in  1873. 
It  is  marked  by  large  accessions  of  gold  to  the 
world's  stock  of  money — "giving  wings  to 
tiade" — by  rising  prices,  by  wonderful  prog- 

• 

n-ss,  liy  uiiwonlcd  enteri)rise  and  prosperit}', 
by  i'aili'oa<l  building,  and  constantly  iucreas- 
iiiu  i!i;i  nil  lad  mini:-.  It  was  an  era  which 
]»roiiiiscd  cxcry  young  man  a  ruturc,  and  cii- 
coui-aL!»'(l  hini  to  acti(!n.  Vet  to  that  iteriod 
bcdonu  I  lie  L^i'calcst  wai's  in  the  histoi-y  of  the 


46 

world,  and  tlic  contracting  of  the  largest  na- 
tional debts.  But  these  calamities  could  not 
stem  the  onward  tide. 

The  second  period  is  marked  by  demoneti- 
zations of  silver,  resumptions  of  specie  pay- 
ments, introductions  of  the  gold  standard, 
contractions  of  the  world's  stock  of  money — 
pinioning  the  wings  of  trade — falling  prices, 
stagnation,  absence  of  enterprise,  and  lack  of 
employment.  It  is  an  era  of  little  promise  for 
the  future.  Yet  we  live  in  profound  peace, 
and  national  debts  have  been  reduced.  But 
these  blessings  cannot  stem  the  downward 
current. 


There  is  one  kind  of  contraction  to  which 
I  would  draw  especial  attention.  Elsewhere 
I  have  pointed  out  the  reasons  for  temporary 
fluctuations  in  the  amount  of  money  held  by 
the  banks  as  reserves,  and  the  money  in  cir- 
culation among  the  people— the  one  falling  as 
the  other  rises,  and  vice  versa.  The  same  law 
evidently  obtains  on  a  larger  scale  in  regard 


47 


to  long-  periods  of  progress  as  against  long 
periods  of  depression  and  increasing  iineer- 
taintj'.  Let  us  compare  the  present  standing 
'  of  the  three  largest  European  banks  to  what 
it  was  fifteen  years  ago,  or  about  the  time 
this  country  had  completed  its  resumption 
process : 

Dec.  18S0.     Mch.  ISDC. 

]\rillions.       Millions. 
Rank  of  France — 

(xold 1105  poo 

Silver 245  2:a) 

Bank  of  Enghmd — 

Issue  de])artment 200  315 

Bank  of  Gernianv — 

Coin  and  bullion 135  235 

Total * J?(;85  11,11)0 

This  table  sliows  in  those  three  banks  alone 
an  increased  holding  of  gold  of  about  8r»00,- 
0()0,()00.  At  the  same  tinu'  the  uncovered  note 
issue  of  the  Think  of  Fi«:\n(e  and  (he  Bank  of 
fJermnny  is  now  .•^7."),0(K),()00  smaller  (Iian  il 
was  in  iSSd.  hi  all,  lliis  is  iicarly  sCdO.OOO.- 
000,  and  lor  (he  most  par(  represen(s  a  ron- 


48 

traction  whicli  is  ((Hiiitcracted  to  but  a  very 
small  (l('i>T('t',  if  any,  by  any  new  supply  of 
gold,  which  latter  has  been  needed,  probably 
to  its  full  extent,  for  resumptions  or  the  adop- 
tion of  the  gold  standard  in  various  countries, 
or  may  be  has  not  even  been  sufiflcient  for  such 
purposes.  Kor  need  we  flatter  ourselves  that 
the  habits  of  the  people  have  changed  so  con- 
siderably- in  favor  of  notes  instead  of  gold. 
The  fact  is,  that  the  banks  in  general  holding 
large  reserves  prefer  to  have  some  of  it  in 
notes,  and  for  this  reason  the  large  increase 
in  the  note  issues  of  the  banks  in  question 
simply  indicates  a  still  larger  increase  in  the 
bank  reserves  throughoutj^hose  countries,  and 
a  corresponding  contraction.  As  regards  the 
banking  department  of  the  Bank  of  England, 
the  reserve  which  fifteen  jenrn  ago  was  satis- 
factory at  thirty  or  thirty-five  per  cent,  is  now 
kept  up  to  seventy  per  cent. 

The  chain  of  cause  and  effect  is  this:  When 
silver  was  demonetized,  or  the  coinage  of  it 
stopped,  the  stock  of  silver  money  in  the  banks 


49 

became  more  or  less  "imavailable.''  The 
gold  reserves  had  to  be  increased.  The 
scramble  for  the  yellow  metal  commenced. 
Coutractiou  aud  uncertainty  of  trade  fol- 
lowed. Traders  and  merchants  who  could  do 
it,  protected  themselves  by  more  ready  cash, 
and  this  again  caused  increase  in  bank  re- 
serves. At  present  the  Bank  of  France  alone 
has  an  "unavailable"  stock  of  silver  of  $250,- 
000,000,  and  on  top  of  that  it  has  an  available 
stock  of  gold  of  .|390,000,000.  When  bimet  al- 
lism  is  restored,  but  not  until  then,  can  a 
change  be  expected.  When  the  stocks  of  sil- 
ver money  in  the  world  are  made  "available'' 
trade  will  be  easy,  the  money  reserves 
will  be  reduced,  the  circulation  will  be  larger, 
prices  will  be  steady,  or  may  even  rise,  and 
prosperity  will  be  at  hand. 


While  Euro])eiin  l^anks  have  been  increas- 
ing their  stock  n\'  gold,  ;ind   Kiissin  li;is  1 ii 

storing  u])  gold  in  aulliipatioii  of  i-csuiiipl  ion, 


50 

t\w  govei'iinioiit  of  the  United  States  has  made 
no  change  in  its  provision  for  the  gold  reserve 
behind  its  greenbacks.  Whik^  the  Bank  of 
France  has  a  note  issue  of  about  1725, 000, ()()(), 
backed  by  |250,000,000  of  silver  and  |:JJ)0,000,- 
000  of  gold,  or  together  |(U0,000,000— or,  as 
some  would  make  the  comparison,  deducting 
1250,000,000  covered  by  silver,  |4T5,000,000 
of  notes  covered  by  |390,000,000  of  gold,  or 
about  82  per  cent— Ave  have  1340,000,000  of 
greenbacks  covered  by  only  |100,000,000  of 
gold,  or  about  20  per  cent.  If  we  had  fol- 
lowed the  same  policy  as  Europe,  by  contract- 
ing our  money  and  raising  our  gold  reserve 
to  80  or  100  per  cent,  it  is  reasonable  to  sup- 
pose that  there  would  have  been  no  outward 
drain  on  the  treasury. 


BIMETALLISM. 

Bimetallism  is  the  imion  of  two  kiuds  of 
monometallism.  How  siieli  a  uuiou  at  auy 
time  was  broiii-lit  about  can  easily  be  under- 
stood.  One  country  had  a  single  silver  stand- 
ard, the  adjoining  country  had  a  single  gold 
standard.  Along  the  border  line  between  the 
t  wo  countries  commodities  sold  on  one  side  of 
I  he  line  for  a  certain  (juantity  of  silver,  on  the 
other  side  for  a  certain  quantity  of  gold.  If 
the  rehitive  value  of  gold  and  silver,  or  the 
ratio  between  the  metals,  happened  to  be 
I'airlv  steady,  what  could  be  more  natural 
than  tliat  tlic  jx'ople  along  the  border  should 
be  indilTereut  to  which  metal  they  used  as 
money  at  the  ratio  established  by  custom? 
An<l  what  would  be  the  consequence  of  such 
iiidisci-imiuate  use  of  eitlxM-  metal  at  the  ra- 
tio ('stablish('(]  by  cusloiii? 

51 


b2 


E 


A 


G 


B' 


F      n 


H 


C 


In  the  above  diagram  AB  represents  the 
gold  country,  AC  the  silver  country,  and  AD 
is  the  frontier  line.  EH  is  the  territory 
where  either  metal  is  acceptable,  or  where 
the  demand  for  gold  or  silver  is  elastic.  If 
the  production  of  gold  predominates,  gold 
will  flow  into  territor}^  AH,  and  drive  some 
silver  into  GC.  If  silver  becomes  predomi- 
nant, the  flow  will  be  in  the  opposite  direc- 
tion. And  all  the  time  the  same  ratio  is  main- 
tained, that  is  to  say,  as  long  as  the  bimetal- 
lic territory  is  large  enough  to  create  a  sufR- 
ciently  elastic  demand  for  either  metal. 

Originally   bimetallism   established   itself, 


§3 

or  was  established  by  the  vohmtary  or  uncon- 
scious use  of  either  metal  at  a  customary  ra- 
tio, and  later  on  it  was  confirmed  by  people 
declaring  through  their  goTernment  that 
either  metal  at  the  customary  ratio  should  be 
acceptable  to  or  used  by  all  citizens,  or  should 
be  a  legal  teuder  in  payment  of  debts,  public 
taxes,  and  dues. 

If  a  ratio  can  thus  be  maintained  by  the 
elastic  use  of  the  respective  metals,  it  is  evi- 
dent that  the  ratio  can  be  changed  by  limit- 
ing the  use  of  one  metal  and  extending  the 
use  of  the  other. 


Bimetallism  has  been  thoroughly  tested  in 
practice,  and  has  been  found  to  work  to  per- 
fection. Such  was  the  case  in  France,  where 
it  was  in  operation  between  1S03  and  1873  at 
the  ratio  of  ir»  1-2  to  1.  Dining  the  whole  of 
that  perio<l  tlic  value  of  the  gold  and  silver 
coins  in  I^i-aiicc  never  devijited  in  the  slight- 
est degree  fncn  1  iie  esl;ihlisiied  ratio.     At  the 


54 

same  time  Loiuloii  was  the  chief  market  phiee 
for  silver,  and  from  there  we  have  tlie  quo- 
tations for  silver  bullion,  which  naturally 
varied  somewhat,  according  as  silve^  w\as 
flowing;  to  or  from  France. 

According  to  the  adopted  ratio  the  value  of 
silver  coins  was  60.84  pence  per  ounce,  at  the 
same  time  the  charge  for. coining  was  0.45 
pence  per  ounce;  the  average  interest  while 
bullion  was  coined  may  be  set  down  at  0.15 
pence  per  ounce,  and,  in  case  the  exchanges 
were  such  that  gold  went  to  England  while 
silver  went  to  France,  this  charge  wouhl  be 
equal  to  0.60  pence  per  ounce.  In  all,  these 
charges  would  amount  to  1.20  pence,  and  if 
this  amount  is  deducted  from  the  value  of  the 
coin,  60.84  pence,  the  minimum  price  of  the 
bullion  in  London  would  be  59.64  pence.  Now, 
if  we  look  up  the  statistics  of  the  price  of  sil- 
ver we  shall  find  that  until  silver  was  demone- 
tized by  Germany,  the  price  of  silver  bullion 
in  London  never  went  below  59  7-8  pence,  and 
this  happened  once,  iu  the  spring  of  1852. 


55 

After  Geriiiaiiy  bad  discarded  silver  the  mint 
of  France  was  so  pressed  that  it  took  a  con- 
siderable time  to  coin  the  bullion  that  was 
sent  in,  and  in  one  case,  just  before  the  mint 
was  closed,  the  Kothschilds  were  notified  that 
thev  Avonld  have  to  wait  a  vear  for  the  coin- 
aji^e  of  bullion  to  be  sent  in  by  them.  The 
interest  may  be  placed  in  this  case  at,  say, 
4  per  cent  i:>er  annum,  and  would  amount  to 
2,28  pence  per  ounce,  which  would  reduce  the 
price  of  silver  bullion  in  London  to  the  figure 
57.3G  pence,  and  that  was  just  about  the  price 
that  silver  commanded  in  1874,  just  before  the 
closing  of  the  French  mint. 

yow,  on  the  other  hand,  suppose  that  gold 
Avas  .flowing  into  France,  and  silver  was  ex- 
j)orted,  say  o^er  London  or  Southampton  to 
India,  how  would  the  case  stand  then?  The 
price  of  silver  in  France,  that  is,  of  the  silver 
<-oins,  accoi-ding  to  the  adopted  ratio,  was 
<»0.84  pence  jx-r  onnce.  Tlie  exchanges  were 
snch  soiiK'l  inics  lluil  lln'  cosi  in  bringing  <lie 
silver  fo  I.ondon  wonM  he  ccpiiN  alciit  to  about 


56 

1  per  cent,  or  say,  0.(11  pence  per  ounce, 
which,  of  course,  wouUl  to  thtit  extent  enhance 
the  value  of  silver  bullion  in  London.  At  the 
same  time  there  was  another  item  that  shouhl 
be  taken  into  account,  and  that  is  "the  abra- 
sion of  the  coins.  In  the  "History  of  Prices," 
by  Tooke,  we  find  that  the  abrasion  was  so 
great  as  to  cause  a  loss  of  3  per  cent  to  the  ex- 
porter. Now,  suppose  that  this  item  would 
only  represent  a  loss  of  2  per  cent  when  a 
large  number  of  coins  were  bought,  this 
would  involve  a  further  charge  of  1.22  pence 
per  ounce,  to  that  extent  further  increasing 
the  value  of  bullion  in  London.  Now,  these 
three  items  would  make  the  price  of  bullion 
in  London  02.07  pence  per  ounce,  and  we  find 
that  in  Juh',  1859,  the  price  of  silver  bullion 
in  London  reached  the  figure  of  02  3-4  pence 
per  ounce.  In  that  year  France  exported 
over  England  to  India  the  enormous  sum  of 
175,000,000. 

From  thq,  above  we  can  easily  understand 
that  if  France  had  charged  no  seigniorage,  if 


57 

she  had  always  kept  her  silver  coins  up  to 
full  weight,  and  if  she  had  issued  silver  cer- 
tificates of  small  denominations  instead  of 
keeping  depositors  of  bullion  waiting  for  their 
coins,  silver  bullion  in  London  could  never 
have  varied  in  price  more  than  would  have 
been  occasioned  by  the  fluctuation  in  the  rate 
of  exchange  between  London  and  Paris. 


WHAT   WOULD    HAPrEN    IF    IN    THIS 
COUNTRY    WE    AUOPTED    UNLIM- 
ITED COINAGE  OF  SILVER  AND 
GOLD  AT  THE  RATIO  OF 
IG  TO  1? 

Wlion  we  have  come  to  the  conclusion  that 
more  money  is  wanted  in  this  counti'j' ,  and  w^e 
attempt  to  devise  plans  for  satisfying  the 
want,  we  must  bear  in  mind,  in  the  first  place, 
that  many  other  countries  have  similar  kinds 
of  mone}"  to  what  we  have,  and  that,  there- 
fore, the  money  of  the  world  is,  to  some  ex- 
tent, so  to  say,  common  propei'ty,  of  which 
each  country  has  its  share,  and  not  more  than 
its  share,  distributed,  and  from  time  to  time 
redistributed,  according  to  certain  economic 
laws.  If  this  country  was  to  add  to  its  money 
a  larger  quantity  than  w^ould  be  called  for  by 
the  increase  in  population,  and  the  expected 

58 


59 

increase  in  the  volume  of  business — for  the 
purpose  of  maintaining  steady  prices — the 
surplus  would  belong,  so  to  say,  to  the  world, 
and  some  of  our  money  would  flow  out.  For 
this  reason  it  would  be  a  mistake  to  think 
that  we  could  retain  the  stock  of  money  we 
have  and  add  to  it  any  quantity  we  please. 

If  free  and  unlimited  coinage  of  silver  and 
gold  at  the  ratio  of  16  to  1  is  adopted,  the  first 
question  will  be:  "What  would  be,  say,  the 
annual  addition  to  our  stock  of  money?" 
When,  under  the  Sherman  act,  we  bought  for 
coinage  4,.j00,000  ounces  of  silver  a  month, 
the  price  of  the  new  silver  product  was  raised 
considerably,  yet  not  to  a  point  corresponding 
with  the  ratio  of  IG  to  1,  which  is  |1.29.  If 
all  silver  that  can  be  produced  at  the  latter 
price  is  accepted  at  the  mint  a  stimulus  would 
be  given  to  silver  mining  and,  in  all  probabil- 
ity, the  annual  addition  to  our  silver  money 
would  run  up  to  a  figure  of  from  100,000,000 
to  Jii;70,()0(  1,000.  We  should  also  have  to  re- 
<('iv('  ii  small  condibulion  from  the  stock  of 


60 

silver  inoiiOT  in  Mexico,  from  whore  silver 
would  flow  until  (he  money  of  (hat  country 
was  at  par  with  tlie  money  of  this  country. 
From  eastern  countries,  like  China  and  India, 
there  would  not  be  the  sli<>litest  danger  of 
any  silver  flood,  because  the  period  of  circu- 
lation of  money  in  those  countries  is  exceed- 
ingly long;  their  commerce  is  small,  and  their 
monej^  is  used  chiefly  for  hoarding — to  be 
brought  out  in  times  of  famine  and  distress. 
Xor  is  it  fair  to  suppofse  that  the  great  Eu- 
ropean nations  would  make  this  country  a 
dumping  ground  for  their  silver,  because,  in 
the  first  place,  the  sentiment  in  favor  of  bi- 
metallism in  those  countries  is  sufficiently 
strong  to  prevent  such  a  policy,  and,  in  the 
second  place,  those  countries  could  not  stand 
the  ruinous  result  which  would  inevitably  fol- 
low the  tremendous  appreciation  of  gold,  and 
fall  in  prices  that  would  be  called  forth  by 
such  a  policy. 

If  silver  was  remonetized  in  this  country  we 
could  thus  calculate  on  a  yearly  addition  to 


61 

our  money  of  sometliiug  like  .$75,000,000  in  sil- 
ver, but  as  this  amount  would  also  be  an  ad- 
dition to  the  world's  stock  of  money  we  should 
have  to  share  with  the  world,  and  should  lose 
part  of  our  gold.  If  we  command  about  fif- 
teen per  cent  of  the  world's  money,  our  net 
gain  would  probably  be  some  |12,000,000  a 
year,  that  is  to  say,  we  would  gain  about  $75,- 
000,000  silver  and  lose  §03,000,000  gold,  which 
latter  would  go  to  Europe  and  other  parts  of 
the  world,  besides  what  gold  we  may  have 
to  furnish  from  our  mines,  as  we  might 
suppose,  on  first  consideration.  Such  an 
outflow  of  gold  would  not,  however,  occur. 
Paradoxical  as  it  would  seem  the  current 
would  at  first  and  for  some  time  be  in  the 
opposite  direction.  Gohl  would  actually 
come  from  Europe  to  this  country.  And  the 
reason  for  this  is  very  simple.  As  soon  as 
we  have  restored  bimetallism  the  value  of 
silver  is  restored.  This  would  make  the 
silvei'  ill  IOuro})e  "available;''  the  scramble 
for   gold    would     cease;    the   bank   reserves 


62 


would  diuiinish;  more  money  wouul  get  into 
circulation,  and  some  of  it  would  come  to  us. 
Such  would  be  the  effect  in  Europe  where 
one  country  after  another  would  soon  follow 
our  exam})le.  '* 

Some  really  terrible  prophecies  have  been 
made  as  to  the  immediate  future,  if  we  adopt 
the  unlimited  coinage  of  silver  at  IG  to  1. 
Here  are  some  of  them : 

1.  The  instantaneous  disappearance  from 
circulation  of  all  our  gold,  w^hich  would  at 
once  be  hoarded. 

2.  Our  silver  dollar  would  be  worth  onlv  50 
cents. 

3.  The  w^ages  of  the  workingman  would  be 
worth  only  one-half  of  what  they  are  worth 
now. 

4.  Commodities  would  double  in  price. 

5.  National  repudiation  and  dishonor. 
Now%  any  man  with  one  grain  of  common 

sense  ought  to  understand  that  if  gold  dis- 
appeared, and  if  silver — and,  of  course,  our 


63 

I>aper  money  also — fell  to  oue-lialf  its  present 
value,  there  would  be  a  contraction  of  our 
stock  of  money  from  |1,500,000,000  to  less 
than  $500,000,000,  and  prices  and  wages 
would  fall  in  one  lick  about  G7  per  cent. 
Surely  the  foreigner  would  come  here  with  all 
the  gold  needed  to  restore  prices.  Such,  at 
least,  has  been  the  rule  as  long  as  false  proph- 
ets have  existed.-  Wouldn't  the  fellow  who 
had  hoarded  his  gold  be  glad  to  bu}^  wheat 
for  20  cents  a  bushel  and  sell  it  for  export  for 
00  cents  and  make  200  per  cent  profit,  and 
thus  U't  out  his  treasure  into  circulation? 
Wouldn't  he  do  his  country  that  favor  for  an 
extra  pr(^fit  of  only  100  per  cent,  or  50  per 
cent,  or  25  per  cent,  or  5  per  cent — all  extra? 
Or,  may  be,  out  of  pure  patriotism,  he  would 
<1()  it  just  for  the  ordinary  profit.  There  is 
notliing  like  a])pealing  to  jieople's  feelings. 
And,  as  for  the  poor  bondholder,  why,  he 
would  get  as  many  dollars  as  before,  only 
now  he  can  hiiv  i'ov  liiat  monev  three  times 
as  much  wheat  as  he  could  before,  and  he  can 


61 

sell  it  for  three  times  as  uiiicli  money  as  he 
paid,  by  exporting  it,  and  thus  realize  15  per 
cent  where  he  only  got  5  before  the  na- 
tional repudiation.  AVouldn't  he  do-  some- 
thing towards  whitewashing  our  national 
dishonor,  and  restoring  the  old  order  of 
things? 

Yerilv,  it  is  tiresome  to  have  to  refute  such 
a  lot  of  balderdash. 

To  be  sure,  an  attempt  may  be  made,  and, 
no  doubt,  it  will  be  made,  to  corner  gold,  but 
the  only  effect  it  can  have  will  be  to  turn  the 
exchanges  in  our  favor,  or  bring  gold  here, 
if  the  circulation  is  appreciably  affected.  If 
the  stock  of  gold  in  course  of  time  becomes 
very  low,  and  the  country  be  practically  on 
a  silver  basis,  there  may  certainly  be  some 
manipulation  of  gold  in  fixing  from  day  to 
day  the  exchanges  with  gold  countries.  If 
we  restore  unlimited  coinage  at  the  ratio  of 
16  to  1  we  may  in  about  ten  years  be  on  a 
silver  basis,  particularly  if  Europe  persists 
in  its  present  monetary  policy.     But  much 


65 

may  happen  in  ten  years  to  prevent  such  an 
occurrence,  and  if  France  alone,  in  the  course 
of  a  few  years,  would  fall  into  line  with  the 
United  States,  the  bimetallic  territory  would 
probably  be  more  than  sufficiently  large  to 
maintain  permanently  the  ratio  of  16  to  1, 
or  15  1-2  to  1. 


CONCLUSION. 

We  have  seen  what  would  be  hkely  to 
happen  if  we  adopt  unhmited  coinage  of 
silver  and  gold  at  the  ratio  of  16  to  1: 

1.  Gold  would  at  first  and  for  some  time 
come  to  us  from  Europe  by  the  reduction  of 
the  European  bank  reserves. 

2.  Other  countries  would  follow  our  ex- 
ample in  restoring  bimetallism,  and  the 
silver  question  would  be  solved  for  good. 

But  in  the  extremely  improbable  event  of 
no  other  country  following  our  example  for 
some  time  to  come,  we  are  still  strong 
enough,  or  our  country  is  large  enough,  to 
maintain  bimetallism,  or  to  keep  both  metals 
in  circulation.  For,  in  the  first  place,  as  we 
add  silver  to   our  circulation  we  may  grad- 

66 


67 


ually  add  gold  to  our  greenback  reserve  to 
the  extent  of  §246,000,000  beyond  what  is 
at  present  prescribed  by  law.  And,  in  the 
second  place,  such  a  seigniorage  might  be 
charged  as  to  j^ractically  control  the  amount 
of  silver  offered  for  coinage.  I  might  say 
something  as  to  the  disposition  of  such  seig- 
niorage, but  after  the  ratio  of  16  to  1  lias 
once  been  adopted  I  hardly  think  we  shall 
have  any  occasion  to  charge  a  seigniorage. 


Science  and  experience  have  amply  jjroveii 
the  usefulness  of  bimetallism.  Justice  and 
the  needs  of  the  people  demand  its  restora- 
tion. 


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